News Release Details

The Ensign Group Reports Third Quarter 2016 Results

MISSION VIEJO, Calif., Nov. 02, 2016 (GLOBE NEWSWIRE) -- The Ensign Group, Inc. (Nasdaq:ENSG), the parent company of the Ensign™ group of skilled nursing, rehabilitative care services, home health, home care, hospice care, assisted living and urgent care companies, today announced its operating results for the third quarter of 2016, reporting GAAP diluted earnings per share for the quarter of $0.21 and adjusted earnings per share for the quarter of $0.32 (1).

Quarter Highlights Include:

Consolidated GAAP EBITDAR for the quarter was $64.3 million, an increase of 19.7% over the prior year quarter, and consolidated adjusted EBITDAR was $68.1 million, an increase of 19.4% over the prior year quarter(1);

Same Store revenue for all segments grew by 4.0% over the prior year quarter to $251.0 million, and same store TSA revenue grew by 3.3% over the prior year quarter to $233.6 million;

Transitioning operational occupancy increased by 278 basis points over the prior year quarter to 74.7% and transitioning managed care days increased by 7.2% over the prior year quarter;

Transitioning revenue for all segments grew
by 4.6% over the prior year quarter to $62.4 million, and transitioning TSA revenue grew by 5.6% over the prior year quarter;

Cornerstone Healthcare, Inc., our home health and hospice subsidiary, grew its segment income by 10.6% over the prior year quarter and revenue by $4.3 million to $29.5 million for the quarter, an increase of 16.9% over the prior year quarter; and

Consolidated GAAP revenues for the quarter were up $77.0 million or 21.9% over the prior year quarter to $428.1 million and consolidated adjusted revenues for the quarter were up $66.5 million or 19.3% over the prior year quarter to $411.2 million(1).

(1) See "Reconciliation of GAAP to Non-GAAP Financial Information".

Operating Results

Ensign's President and Chief Executive Officer Christopher Christensen indicated that the results for the quarter were in line with management's expectations. Mr. Christensen reiterated that management anticipated the challenges that Ensign experienced and identified in the latter-half of the second quarter to continue into the third quarter. He also affirmed that management expects Ensign to meet management's annual guidance for 2016.

"As we have discussed over and over again, our results are not symmetrical on a quarter by quarter basis, and we continue to focus on the fundamentals of our ever-changing business and
driving clinical and financial performance over the long-term," Christensen said. "Although we expect some of the lumpiness we have experienced recently to continue as referral and managed care networks continue to narrow on varying timelines, we are pleased that we have increased revenue and earnings under challenging circumstances," he added.

Commenting on some of the factors that impacted the quarter, Mr. Christensen indicated that most of the softness in occupancy that Ensign experienced was limited to few geographies, adding that "there are several strong pockets where our operations are performing ahead of schedule." He added that "some slower-than-usual transitions and collection challenges in connection with our newly acquired operations, along with pressures on occupancy and skilled mix in a few of our markets during the quarter, all
combined to impact our results. But the good news is that there is much more we can do to continue improving our operations across the board, regardless of any industry changes on the horizon."

Mr. Christensen continued by indicating that Ensign's talented local leaders have focused relentlessly on building exceptional clinical systems to attract higher-acuity patients, growing occupancy and right-sizing expenses, one market at a time. He also noted that many same-store leaders have been focusing on integrating 74 recently acquired and 29 transitioning skilled nursing and assisted living operations into the organization, which efforts have impacted operating results in both same store and newly acquired operations. He added, "We have yet to tap into the exceptional amount of organic growth potential inherent in our newer operations, but we are
as excited as ever about each of our strategic acquisitions and believe that as each of these carefully-selected additions are fully integrated, and as networks continue to narrow, that we will capitalize on the organic growth potential inherent in our same store, transitioning and newly acquired operations."

Chief Financial Officer Suzanne Snapper reported that adjusted operating margins were impacted by a number of factors, including a 196 basis point decline in same store occupancy, which was somewhat offset by an 126 basis point increase in managed care days. "In addition, we continue to see growth in our other skilled days and assisted living patient days, with increases of 755 basis points and 67 basis points, respectively, over the quarter," she said. Ms. Snapper further noted that Ensign's
business can vary from quarter to quarter, due largely to changes in reimbursement systems, delays and changes in state budgets, seasonality in occupancy and skilled mix, and the short-term impact of Ensign's acquisition activities.

Ms. Snapper added, "The fourth quarter is when we historically have our best occupancy and mix, as well as the positive effects of our annual rate increases," she said, noting that the majority of the improvements in Medicaid reimbursement in key states and the 2.4% market basket increase to Medicare rates will begin to take effect in the fourth quarter.

Ms. Snapper also added, "Our balance sheet remained strong, with approximately $290 million of availability on Ensign's new $450 million credit facility as of October
1, 2016, which also has a built-in expansion option, and 32 unlevered real estate assets that add additional liquidity." Ms. Snapper also reported that consolidated revenues for the quarter were up 21.9% over the prior year quarter to a record $428.1 million, GAAP EBITDAR for the quarter was $64.3 million and consolidated adjusted EBITDAR for the quarter was $68.1 million, an increase of 19.4% over the prior year quarter.

GAAP diluted earnings per share were $0.21 and fully diluted adjusted earnings per share were $0.32 for the quarter. GAAP net income was $11.2 million and adjusted net income was $16.5 million. A discussion of the company's use of non-GAAP financial measures is set forth below. A reconciliation of net income to
adjusted EBITDAR and adjusted EBITDA, as well as a reconciliation of GAAP earnings per share and net income to adjusted net earnings per share and adjusted net income, appear in the financial data portion of this release.

More complete information is contained in the Company's 10-Q, which was filed with the SEC today and can be viewed on the Company's website at http://www.ensigngroup.net.

Quarter Highlights

During the quarter, the Company paid a quarterly cash dividend of $0.04 per share of Ensign common stock. Ensign has been a dividend-paying company since 2002 and has
increased its dividend every year for 14 years.

Also during the quarter and since, the company announced the acquisition of the operations and real estate of Riverbend Post Acute Rehabilitation, a 152-bed skilled nursing facility located in Kansas City, Kansas. Ensign also announced that Cornerstone Healthcare, Inc., Ensign's home health and hospice portfolio subsidiary, acquired the assets of Kinder Hearts Home Health and Hospice in Abilene, Texas effective September 1, 2016.

In addition, during the quarter Ensign affiliated operating companies opened two Healthcare Resorts, including:

The Healthcare Resort of Waco, with a 70-bed licensed transitional care
operation and 30 private assisted living suites; and

The Healthcare Resort of Topeka, with a 70-bed licensed transitional care operation and 35 private assisted living suites.

The Healthcare Resorts offer world-class rehabilitation and healthcare services in a resort-like setting as well as offering private extended-stay suites for patients requiring additional assistance before they return home.

Ensign announced during the quarter that its urgent care subsidiary, Immediate Clinic Seattle, Inc., agreed to sell substantially all of its assets relating to its 14 urgent care operations in the greater Seattle market. The asset sale includes 14 clinics in the greater Seattle, Washington area, as well as two additional locations that are currently under development. The sale of Immediate Clinic,
together with the sale of Integrity Urgent Care in Colorado in the third quarter, represents all of the Ensign-affiliated urgent care operations. The parties expect to consummate the sale on December 11, 2016, and the transaction remains subject to certain closing conditions.

This brings Ensign's growing portfolio to 209 healthcare operations, thirty-five of which are owned, eighteen hospice agencies, seventeen home health agencies and three home care businesses across fourteen states. Mr. Christensen reaffirmed that Ensign continues to actively seek transactions to acquire real estate and to lease both well-performing and struggling skilled nursing, assisted living and other healthcare related businesses in new and existing markets.

2016 Guidance Reaffirmed

Management
reaffirmed its 2016 annual revenue guidance of $1.625 billion to $1.660 billion and its 2016 annual earnings per share guidance of $1.35 to $1.42 per diluted share. Management's guidance is based on diluted weighted average common shares outstanding of 52.6 million, which includes the impact of the stock repurchases in the first quarter of 2016. In addition, the guidance assumes, among other things, anticipated Medicare and Medicaid reimbursement rate increases net of provider taxes, tax rates of 38.5% and acquisitions closed to date. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, stock based compensation, gain on sale of urgent care centers, implementation costs for system improvements, costs incurred to recognize income tax credits, results at
one closed facility, costs incurred for facilities currently being constructed and other start-up operations and insurance reserves in connection with legal settlements.

2017 Guidance Affirmed

Management also affirmed its guidance for 2017, with annual revenue guidance of $1.818 billion to $1.842 billion and annual earnings per share guidance of $1.62 to $1.70 per diluted share. Management's guidance is based on diluted weighted average common shares outstanding of 54.2 million and a 36.0% tax rate, both of which reflect the anticipated impact of ASU 2016-09 that will become effective in 2017. In addition, the guidance assumes, among other things, anticipated Medicare and Medicaid reimbursement rate increases net of provider taxes
and acquisitions closed to date. It also excludes acquisition-related costs and amortization costs related to intangible assets acquired, stock based compensation, costs incurred to recognize income tax credits and costs incurred for facilities currently being constructed and other start-up operations.

Conference Call

A live webcast will be held Thursday, November 3, 2016 at 10:00 a.m. Pacific time (1:00 p.m. Eastern time) to discuss Ensign's third quarter financial results. To listen to the webcast, or to view any financial or statistical information required by SEC Regulation G, please visit the Investors Relations section of Ensign's website at http://investor.ensigngroup.net. The webcast will be recorded, and will be available for replay via the website until 5:00 p.m. Pacific Time on Friday, December 2, 2016.

About Ensign™

The Ensign Group, Inc.'s independent operating subsidiaries provide a broad spectrum of skilled nursing and assisted living services, physical, occupational and speech therapies, home health and hospice services, urgent care services and other rehabilitative and healthcare services at 209 operations, eighteen hospice
agencies, seventeen home health agencies, three home care businesses and fourteen urgent care clinics in California, Arizona, Texas, Washington, Utah, Idaho, Colorado, Nevada, Iowa, Nebraska, Oregon, Wisconsin, Kansas and South Carolina. Each of these operations is operated by a separate, independent operating subsidiary that has its own management, employees and assets. References herein to the consolidated "company" and "its" assets and activities, as well as the use of the terms "we," "us," "its" and similar terms, are not meant to imply that The Ensign Group, Inc. has direct operating assets, employees or revenue, or that any of the operations, the home health and hospice businesses, the Service Center or the captive insurance subsidiary are operated by the same entity. More information about Ensign is available at
http://www.ensigngroup.net.

This press release contains, and the related conference call and webcast will include, forward-looking statements that are based on management's current expectations, assumptions and beliefs about its business, financial performance, operating results, the industry in which it operates and other future events. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These forward-looking statements include, but are
not limited to, statements regarding growth prospects, future operating and financial performance, and acquisition activities. They are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to materially and adversely differ from those expressed in any forward-looking statement.

These risks and uncertainties relate to the company's business, its industry and its common stock and include: reduced prices and reimbursement rates for its services; its ability to acquire, develop, manage or improve operations, its ability to manage its increasing borrowing costs as it incurs additional indebtedness to fund the acquisition and development of operations; its ability to access capital on a cost-effective basis to continue to successfully implement its growth strategy; its operating margins and
profitability could suffer if it is unable to grow and manage effectively its increasing number of operations; competition from other companies in the acquisition, development and operation of facilities; its ability to defend claims and lawsuits, including professional liability claims alleging that our services resulted in personal injury, and other regulatory-related claims; and the application of existing or proposed government regulations, or the adoption of new laws and regulations, that could limit its business operations, require it to incur significant expenditures or limit its ability to relocate its operations if necessary. Readers should not place undue reliance on any forward-looking statements and are encouraged to review the company's periodic filings with the Securities and Exchange Commission, including its Form 10-Q, for a more complete discussion of the
risks and other factors that could affect Ensign's business, prospects and any forward-looking statements. Except as required by the federal securities laws, Ensign does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release.

(4) Facility Closed represent the result of one facility closed during the first quarter of 2016. These results were excluded from Same Facility results for the three months ended September 30, 2015
for comparison purposes.

Nine Months EndedSeptember 30,

2016

2015

(Dollars in thousands)

Change

% Change

Total Facility Results:

Skilled nursing revenue

$

1,012,946

$

819,655

$

193,291

23.6

%

Assisted and independent living revenue

92,124

57,916

34,208

59.1

%

Total TSA services revenue

$

1,105,070

$

877,571

$

227,499

25.9

%

Number of facilities at period end

209

178

31

17.4

%

Actual patient days

4,393,965

3,515,719

878,246

25.0

%

Occupancy percentage — Operational beds

76.2

%

78.2

%

(2.0

)

%

Skilled mix by nursing days

31.2

%

30.2

%

1.0

%

Skilled mix by nursing revenue

52.8

%

52.9

%

(0.1

)

%

Nine Months EndedSeptember 30,

2016

2015

(Dollars in thousands)

Change

% Change

Same Facility Results(1):

Skilled nursing revenue

$

673,751

$

644,594

$

29,157

4.5

%

Assisted and independent living revenue

27,890

27,425

465

1.7

%

Total TSA services revenue

$

701,641

$

672,019

$

29,622

4.4

%

Number of facilities at period end

106

106

—

—

%

Actual patient days

2,546,746

2,562,390

(15,644

)

(0.6

)

%

Occupancy percentage — Operational beds

79.1

%

80.3

%

(1.2

)

%

Skilled mix by nursing days

30.4

%

30.2

%

0.2

%

Skilled mix by nursing revenue

51.6

%

53.1

%

(1.5

)

%

Nine Months EndedSeptember 30,

2016

2015

(Dollars in thousands)

Change

% Change

Transitioning Facility Results(2):

Skilled nursing revenue

$

129,353

$

121,802

$

7,551

6.2

%

Assisted and independent
living revenue

14,290

13,137

1,153

8.8

%

Total TSA services revenue

$

143,643

$

134,939

$

8,704

6.5

%

Number of
facilities at period end

29

29

—

—

%

Actual patient days

566,172

549,248

16,924

3.1

%

Occupancy percentage — Operational beds

74.0

%

71.9

%

2.1

%

Skilled mix by nursing days

33.6

%

31.7

%

1.9

%

Skilled mix by nursing revenue

55.4

%

54.4

%

1.0

%

Nine Months EndedSeptember 30,

2016

2015

(Dollars in thousands)

Change

% Change

Recently Acquired Facility Results(3):

Skilled nursing revenue

$

209,222

$

47,764

$

161,458

NM

Assisted and independent living revenue

49,944

17,354

32,590

NM

Total TSA services revenue

$

259,166

$

65,118

$

194,048

NM

Number of facilities at period end

74

42

32

NM

Actual patient days

1,277,802

377,219

900,583

NM

Occupancy percentage — Operational beds

72.0

%

74.7

%

NM

Skilled mix by nursing days

32.2

%

29.1

%

NM

Skilled mix by nursing revenue

55.0

%

49.4

%

NM

Nine Months EndedSeptember 30,

2016

2015

(Dollars in thousands)

Change

% Change

Facility Closed(4):

Skilled nursing revenue

$

620

$

5,495

$

(4,875

)

NM

Assisted and independent living revenue

-

-

-

NM

Total TSA services revenue

$

620

$

5,495

$

(4,875

)

NM

Actual patient days

3,245

26,862

(23,617

)

NM

Occupancy percentage — Operational beds

70.7

%

71.8

%

NM

Skilled mix by nursing days

9.6

%

13.1

%

NM

Skilled mix by nursing revenue

14.0

%

30.1

%

NM

_______________________

(1) Same Facility results represent all facilities purchased prior to January 1, 2013.

(2) Transitioning Facility results represents all facilities purchased from January 1, 2013 to December 31, 2014.

(4) Facility Closed represent the result of one facility closed during the first quarter of 2016. These results were excluded from Same Facility results for nine months ended September 30, 2016 and 2015 for comparison purposes. Included in the nine months ended September 30, 2016 results is one month of operation as the facility was closed in February 2016; as such, the metrics are not comparable to the results during the nine months ended September 30, 2015.

THE ENSIGN GROUP, INC. SKILLED NURSING AVERAGE DAILY REVENUE RATES AND PERCENT OF SKILLED NURSING REVENUE AND DAYS BY PAYOR

The following table reflects the change in the skilled nursing average daily revenue rates by payor source, excluding services that are not covered by the daily rate:

Three Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Skilled Nursing Average Daily Revenue Rates:

Medicare

$

583.82

$

559.32

$

565.61

$

559.12

$

485.97

$

481.03

$

549.31

$

549.74

Managed care

425.23

421.83

464.33

458.62

404.24

408.76

425.91

426.75

Other skilled

474.97

451.25

341.37

324.39

403.36

425.29

449.50

430.03

Total skilled revenue

505.33

492.52

485.86

476.43

450.05

447.69

487.37

484.90

Medicaid

211.47

190.99

202.53

185.35

170.67

189.56

199.35

189.82

Private and other payors

203.92

190.06

177.55

193.00

179.69

200.88

193.87

191.20

Total skilled nursing revenue

$

297.30

$

281.11

$

290.06

$

280.18

$

256.27

$

270.29

$

285.00

$

279.09

Nine Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Skilled Nursing Average Daily Revenue Rates:

Medicare

$

581.30

$

562.85

$

559.92

$

557.24

$

489.68

$

468.53

$

554.01

$

555.32

Managed care

423.77

418.24

464.02

460.52

407.70

409.74

427.06

426.19

Other skilled

469.96

465.47

348.01

324.72

394.29

502.69

442.83

446.08

Total skilled revenue

503.80

497.92

480.78

479.35

451.19

452.43

488.32

492.12

Medicaid

208.06

190.28

193.96

183.80

173.44

187.74

198.66

188.78

Private and other payors

203.69

189.98

208.51

199.05

185.15

195.12

199.84

191.48

Total skilled nursing revenue

$

297.73

$

283.16

$

291.89

$

279.36

$

264.53

$

265.74

$

289.37

$

280.70

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the three months ended September 30, 2016 and 2015:

Three Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Percentage of Skilled Nursing Revenue:

Medicare

26.1

%

28.6

%

23.2

%

24.4

%

32.1

%

28.2

%

27.2

%

27.9

%

Managed care

15.8

16.2

25.2

24.8

17.7

17.9

17.4

17.6

Other skilled

8.3

7.6

4.9

5.7

3.2

4.9

6.7

7.0

Skilled mix

50.2

52.4

53.3

54.9

53.0

51.0

51.3

52.5

Private and other payors

8.9

7.9

6.5

8.3

10.2

8.3

8.9

8.0

Quality mix

59.1

60.3

59.8

63.2

63.2

59.3

60.2

60.5

Medicaid

40.9

39.7

40.2

36.8

36.8

40.7

39.8

39.5

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Three Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Percentage
of Skilled Nursing Days:

Medicare

13.3

%

14.4

%

11.9

%

12.2

%

16.9

%

15.9

%

14.1

%

14.2

%

Managed care

11.0

10.8

15.7

15.1

11.2

11.8

11.6

11.5

Other skilled

5.2

4.7

4.2

5.0

2.1

3.1

4.3

4.5

Skilled mix

29.5

29.9

31.8

32.3

30.2

30.8

30.0

30.2

Private and other payors

13.0

11.7

10.6

12.1

14.5

11.2

13.1

11.8

Quality mix

42.5

41.6

42.4

44.4

44.7

42.0

43.1

42.0

Medicaid

57.5

58.4

57.6

55.6

55.3

58.0

56.9

58.0

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

The following tables set forth our percentage of skilled nursing patient revenue and days by payor source for the nine months ended
September 30, 2016 and 2015:

Nine Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Percentage of Skilled Nursing Revenue:

Medicare

27.4

%

30.2

%

23.0

%

24.0

%

32.4

%

29.5

%

27.8

%

29.2

%

Managed care

16.2

15.7

26.4

25.6

18.7

14.7

18.0

17.0

Other skilled

8.0

7.2

6.0

4.8

3.9

5.2

7.0

6.7

Skilled mix

51.6

53.1

55.4

54.4

55.0

49.4

52.8

52.9

Private and other payors

8.3

8.0

7.6

8.5

9.3

11.6

8.4

8.4

Quality mix

59.9

61.1

63.0

62.9

64.3

61.0

61.2

61.3

Medicaid

40.1

38.9

37.0

37.1

35.7

39.0

38.8

38.7

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Nine Months Ended September 30,

Same Facility

Transitioning

Acquisitions

Total

2016

2015

2016

2015

2016

2015

2016

2015

Percentage of Skilled Nursing Days:

Medicare

14.0

%

15.2

%

12.0

%

12.0

%

17.5

%

16.7

%

14.5

%

14.8

%

Managed care

11.4

10.6

16.6

15.5

12.1

9.6

12.2

11.2

Other skilled

5.0

4.4

5.0

4.2

2.6

2.8

4.5

4.2

Skilled mix

30.4

30.2

33.6

31.7

32.2

29.1

31.2

30.2

Private and other payors

12.3

11.9

10.7

12.0

13.3

15.8

12.3

12.3

Quality mix

42.7

42.1

44.3

43.7

45.5

44.9

43.5

42.5

Medicaid

57.3

57.9

55.7

56.3

54.5

55.1

56.5

57.5

Total skilled nursing

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

THE ENSIGN GROUP, INC. SELECT PERFORMANCE INDICATORS (Unaudited)

The following tables summarize our selected performance indicators for our home health and hospice segment along with other statistics, for each of the dates or periods indicated:

Three Months EndedSeptember 30,

2016

2015

Change

% Change

(Dollars in thousands)

Results:

Home health and hospice revenue:

Home health services

$

15,529

$

12,794

$

2,735

21.4

%

Hospice services

13,991

12,456

1,535

12.3

Total home health and hospice revenue

$

29,520

$

25,250

$

4,270

16.9

%

Home health services:

Medicare Episodic Admissions

2,040

1,856

184

9.9

%

Average Medicare Revenue per Completed Episode

$

2,978

$

2,920

$

58

2.0

%

Hospice services:

Average Daily Census

907

764

143

18.7

%

Nine Months EndedSeptember 30,

2016

2015

Change

% Change

(Dollars in thousands)

Results:

Home health and hospice revenue:

Home health services

$

43,852

$

34,452

$

9,400

27.3

%

Hospice services

40,827

29,057

11,770

40.5

Total home health and hospice revenue

$

84,679

$

63,509

$

21,170

33.3

%

Home health services:

Medicare Episodic Admissions

6,234

5,343

891

16.7

%

Average Medicare Revenue per Completed Episode

$

2,955

$

2,960

$

(5

)

(0.2

)

%

Hospice services:

Average Daily Census

881

622

259

41.6

%

THE ENSIGN GROUP, INC. REVENUE BY PAYOR SOURCE

The following table sets forth our total revenue by payor source and as a percentage of total revenue for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

$

%

$

%

$

%

$

%

Revenue:

(Dollars in thousands)

(Dollars in thousands)

Medicaid

$

140,487

32.8

%

$

114,106

32.5

%

$

390,825

32.0

%

$

316,608

32.7

%

Medicare

122,292

28.6

101,212

28.8

352,013

28.8

290,964

30.0

Medicaid—skilled

22,172

5.2

18,924

5.4

64,499

5.3

51,206

5.3

Total

284,951

66.6

234,242

66.7

807,337

66.1

658,778

68.0

Managed care

67,381

15.7

54,411

15.5

197,102

16.1

148,374

15.3

Private and other(1)

75,733

17.7

62,433

17.8

217,377

17.8

161,519

16.7

Total revenue

$

428,065

100.0

%

$

351,086

100.0

%

$

1,221,816

100.0

%

$

968,671

100.0

%

(1) Private and other payors also includes revenue from our urgent care centers and other ancillary operations.

(b) Represent operating results for facilities currently being constructed and other start-up operations.

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Revenue

$

(10,908

)

$

-

$

(21,561

)

$

-

Cost of services

12,247

918

24,711

1,526

Rent

3,185

3

6,673

10

Depreciation and amortization

229

13

522

16

Total Non-GAAP adjustment

$

4,753

$

934

$

10,345

$

1,552

(c) Represent results at closed facility during the three and nine months ended September 30, 2016, including the fair value of continued obligation under the lease agreement and related closing expenses of $7.9 million and operating losses of $0.3 million.

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Revenue

$

-

$

-

$

(105

)

$

-

Cost of services

131

-

8,567

-

Rent

5

-

62

-

Depreciation and amortization

-

-

14

-

Total Non-GAAP adjustment

$

136

$

-

$

8,538

$

-

(d) Represent stock-based compensation expense incurred.

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Cost of services

$

1,216

$

1,078

$

3,745

$

3,160

General and administrative

1,026

644

3,162

1,788

Total Non-GAAP adjustment

$

2,242

$

1,722

$

6,907

$

4,948

(e) Included in cost of services are insurance reserves in connection with the
settlement of claims.

(f) Included in general and administrative expense are costs incurred to acquire an operation which are not capitalizable.

(g) Included in (gain)/loss related to divestitures is gain on sale of urgent care centers.

(h) Included in general and administrative expense are costs incurred related to new systems implementation and income tax credits which contributed to a decrease in effective tax rate.

(i) Included in general and administrative expense is a breakup fee, net of costs, received in connection with a public auction.

(j) Included in depreciation and amortization are amortization expenses related to patient base intangible assets at newly acquired skilled nursing and assisted living facilities.

(k) Included in interest expense are write-offs of deferred financing fees associated with the amendment of credit facility and amortization of deferred financing fees related to the former revolving credit facility as part of the spin-off transaction.

(l) Represents an adjustment to provision for income tax to our historical year to date effective tax rate of 38.5%

The table below reconciles net income to EBITDA, EBITDAR, Adjusted EBITDA and Adjusted EBITDAR for the periods presented:

Three Months EndedSeptember 30
,

Nine Months EndedSeptember 30,

2016

2015

2016

2015

Consolidated Statements of Income Data:

Net income

11,184

13,159

31,837

41,480

Less: net income (loss) attributable to noncontrolling interests

29

(313

)

184

(351

)

Interest expense, net

1,899

560

4,202

1,432

Provision for income taxes

6,957

7,869

20,124

25,833

Depreciation and amortization

10,911

7,288

28,981

20,185

EBITDA

30,922

29,189

84,960

89,281

Facility rent—cost of services

33,342

24,500

91,074

62,531

EBITDAR

64,264

53,689

176,034

151,812

EBITDA

$

30,922

$

29,189

$

84,960

$

89,281

Adjustments to EBITDA:

Urgent care center earnings(a)

(634

)

(418

)

(2,501

)

(1,982

)

Costs incurred for facilities currently being constructed and other start-up operations(b)

1,338

918

3,150

1,526

Results at closed facility, including continued obligations and closing expenses (c)

131

-

8,462

-

Stock-based
compensation expense(d)

2,242

1,722

6,907

4,948

Gain on sale of urgent care centers(e)

(2,505

)

-

(2,505

)

-

Insurance reserve in connection with the settlement of claims(f)

3,115

-

4,701

-

Acquisition related costs(g)

45

203

938

793

Costs incurred related to new systems implementation and professional service fees(h)

126

920

1,073

2,119

Breakup fee, net of costs, received in connection with a
public auction(i)

-

-

-

(1,019

)

Rent related to items(a), (b), and (c) above

3,689

540

8,350

1,556

Adjusted EBITDA

$

38,469

$

33,074

$

113,535

$

97,222

Rent—cost of services

33,342

24,500

91,074

62,531

Less: rent
related to items(a), (b) and (c) above

(3,689

)

(540

)

(8,350

)

(1,556

)

Adjusted EBITDAR

$

68,122

$

57,034

$

196,259

$

158,197

(a) Operating results at urgent care centers. This amount excludes rent, depreciation and interest of $0.8 million and $2.5 million for the three and nine months ended September 30, 2016 and 2015, respectively. The results also exclude the net loss attributable to the variable interest entity associated
with our urgent care business.

(b) Costs incurred for facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest of $3.4 million and $7.2 million for the three and nine months ended September 30, 2016, respectively. Rent, depreciation and interest expenses were not material for the three and nine months ended September 30, 2015.

(c) Results at closed facility during three and nine months ended September 30, 2016, including the fair value of continued obligation under lease agreement and related closing expenses of $7.9 million and operating losses of $0.2 million for the nine months
ended September 30, 2016.

(d) Stock-based compensation expense incurred during the three and nine months ended September 30, 2016 and 2015.

(e) Gain on the sale of urgent care centers.

(f) Insurance reserves in connection with the settlement of claims.

(g) Costs incurred to acquire an operation which are not capitalizable.

(h) Costs incurred related to new systems implementation and income tax credits which contributed to a decrease in effective tax rate.

(i) Breakup fee, net of costs, received in connection with a public auction in which we were the priority bidder.

The table below reconciles net income to EBITDA, EBITDAR, Adjusted EBITDA and Adjusted EBITDAR for each reportable segment for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

2016

2015

2016

2015

TSA Services

Home Health and Hospice

TSA Services

Home Health and Hospice

Statements of Income Data:

Income from operations, excluding general and administrative expense(a)

$

31,807

$

36,226

$

4,499

$

4,067

$

98,761

$

108,592

$

12,024

$

9,738

Depreciation and amortization

8,680

5,542

215

258

22,757

15,368

711

703

EBITDA

$

40,487

$

41,768

$

4,714

$

4,325

$

121,518

$

123,960

$

12,735

$

10,441

Rent—cost of services

32,338

23,574

404

332

88,071

59,950

1,151

866

EBITDAR

$

72,825

$

65,342

$

5,118

$

4,657

$

209,589

$

183,910

$

13,886

$

11,307

EBITDA

$

40,487

$

41,768

$

4,714

$

4,325

$

121,518

$

123,960

$

12,735

$

10,441

Adjustments to EBITDA:

Costs at facilities currently being constructed and other
start-up operations(b)

1,299

836

39

59

3,072

1,983

78

—

Results at closed facility, including continued obligations and closing expenses (c)

131

—

—

—

8,462

—

—

—

Stock-based compensation expense(d)

1,123

997

66

—

3,460

2,890

204

181

Insurance reserve in connection with the settlement of claims(e)

3,115

—

—

—

4,701

—

—

—

Rent related to item(b) and (c)above

3,175

—

9

—

6,645

—

27

—

Adjusted EBITDA

$

49,330

$

43,601

$

4,828

$

4,384

$

147,858

$

128,833

$

13,044

$

10,622

Rent—cost of services

32,338

23,574

404

332

88,071

59,950

1,151

866

Less: rent related to items(b) and (c)above

(3,175

)

—

(9

)

—

(6,645

)

—

(27

)

—

Adjusted EBITDAR

$

78,493

$

67,175

$

5,223

$

4,716

$

229,284

$

188,783

$

14,168

$

11,488

(a) General and administrative expenses are not allocated to any segment for purposes of determining segment profit or loss.

(b) Costs incurred for facilities currently being constructed and other start-up operations. This amount excludes rent, depreciation and interest of $3.4 million and $7.2 million for the three and nine months ended September 30, 2016, respectively. Rent, depreciation and interest expenses were not material for the three and nine months ended September 30, 2015.

(c) Results at closed facility during three and nine months ended September 30, 2016, including the fair value of continued obligation under lease agreement and related closing expenses of $7.9 million and operating losses of $0.2 million for the nine months ended September 30, 2016.

(d) Stock-based compensation expense incurred during the three and nine months ended September 30, 2016 and 2015.

(e) Insurance reserves in connection with the settlement of claims.

Discussion of Non-GAAP Financial Measures

EBITDA consists of net income before (a) interest expense, net, (b)
provisions for income taxes and (c) depreciation and amortization. EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization and (d) rent-cost of services. Adjusted EBITDA consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) costs incurred for operations currently being constructed and other start-up operations, excluding depreciation, interest and income taxes, (e) results of a single closed operation, excluding depreciation, interest and income taxes, (f) stock-based compensation expense, (g) costs incurred related to new systems implementation, (h) breakup fee, net of costs, received in connection with a public auction in which we were the priority bidder, (i) professional service fees include costs incurred to recognize income tax
credits which contributed to a decrease in effective tax rate, (j) costs incurred to acquire operations which are not capitalized, (k) insurance reserves in connection with legal settlements, (l) gain on sale of urgent care centers and (m)operating results at urgent care centers, excluding depreciation, interest and income taxes. Adjusted EBITDAR consists of net income before (a) interest expense, net, (b) provisions for income taxes, (c) depreciation and amortization, (d) rent-cost of services, (e) costs incurred for facilities currently being constructed and other start-up operations, excluding rent, depreciation, interest and income taxes, (f) results of a single closed operation, excluding depreciation, interest and income taxes, (g) stock-based compensation expense, (h) costs incurred related to new systems implementation, (i) break-up fee, net of costs, received in connection
with a public auction in which we were the priority bidder , (j) professional service fees include costs incurred to recognize income tax credits which contributed to a decrease in effective tax rate, (k) costs incurred to acquire operations which are not capitalized, (l) insurance reserves in connection with legal settlements, (m) gain on sale of urgent care centers and (n) operating results at urgent care centers, excluding rent, depreciation, interest and income taxes. The company believes that the presentation of EBITDA, EBITDAR, adjusted EBITDA, adjusted EBITDAR, adjusted net income and adjusted earnings per share provides important supplemental information to management and investors to evaluate the company's operating performance. The company believes disclosure of adjusted net income per share, EBITDA, EBITDAR, adjusted EBITDA and adjusted EBITDAR has economic substance because
the excluded revenues and expenses are infrequent in nature and are variable in nature, or do not represent current revenues or cash expenditures. A material limitation associated with the use of these measures as compared to the GAAP measures of net income and diluted earnings per share is that they may not be comparable with the calculation of net income and diluted earnings per share for other companies in the company's industry. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. For further information regarding why the company believes that this non-GAAP measure provides useful information to investors, the specific manner in which management uses this measure, and some of the limitations associated with the use of this measure, please refer to the company's periodic filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K and Quarterly Report on Form 10-Q. The company's periodic filings are available on the SEC's website at www.sec.gov or under the "Financial Information" link of the Investor Relations section on Ensign's website at http://www.ensigngroup.net.